Mixed Bundling in Retail DVD Sales: Facts and Theories

31 Pages Posted: 16 Jul 2018

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Gabriel Natividad

Universidad de Piura

Date Written: July 2018

Abstract

Many DVD titles are sold in retail stores in bundles, typically a bundle of two different titles with common characteristics: same lead actor/actress, same director, same genre, etc. This suggests that consumer valuations are positively correlated across the bundle components, which in turn runs counter to the received wisdom that bundling is most profitable when valuations are negatively correlated. In this paper, we propose a solution to this puzzle, one that is based on the observation that DVDs are sequentially released durable goods. At the time the second title is released, it is likely that high-valuation buyers will have bought the first one. For this reason, even though ex-ante valuations are positively correlated, ex-post -- that is, at the time the second title is released -- valuations are negatively correlated. We provide sufficient conditions such that mixed bundling increases revenues and the revenue increase is greater the more positively correlated valuations are. We also provide empirical confirmation of this prediction as well as an independent estimate from a calibrated analytical model.

Keywords: mixed bundling; price discrimination; durable goods

JEL Classification: L10

Suggested Citation

Cabral, Luis M. B. and Natividad, Gabriel, Mixed Bundling in Retail DVD Sales: Facts and Theories (July 2018). CEPR Discussion Paper No. DP13040. Available at SSRN: https://ssrn.com/abstract=3214558

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gabriel Natividad

Universidad de Piura ( email )

Calle Martir Olaya 162
Lima, Lima L18
Peru

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